Greek bailout takes two leaps forward

Geir Moulson and Elena Becatoros
Associated Press

Berlin — The bailout of Greece took several big strides forward Friday after German lawmakers overwhelmingly gave their backing to another financial rescue and the European Union confirmed it would get Athens enough money to avoid an imminent debt default.

The developments, which capped a week in which Greece has cleared a string of hurdles, prompted a positive assessment from Europe’s bailout fund. In a statement, the European Stability Mechanism said its board of governors approved a “decision to grant, in principle, stability support to Greece in the form of a loan program.”

Though the broad outlines of the Greek bailout were agreed Monday by the eurozone’s 19 leaders, the ESM’s decision formally kick-starts the process by which Greece negotiates the nitty-gritty of its bailout program. The discussions, which are expected to last four weeks, will include economic targets and reforms deemed necessary in return for an anticipated 85 billion euros ($93 billion) over three years.

“This agreement offers a chance to put the Greek economy back on track,” said Jeroen Dijsselbloem, the eurozone’s top official who also chairs the ESM board. “It’s not going to be easy. We are certain to encounter problems in the years to come. But I believe we will be able to resolve them.”

The ease with which the pieces have fallen into place this week has raised expectations that Greece will get back to some sort of economic normality following weeks of crisis that have seen its banks shuttered and withdrawals at ATMs limited to a paltry 60 euros a day.

The first big development Friday was the news that German lawmakers, in the wake of their Austrian counterparts, voted 439-119 in favor of opening detailed discussions on the bailout package, after Chancellor Angela Merkel warned that Greece would face chaos without a deal.

That was later followed by confirmation that the 28-country EU is to get Greece 7.16 billion ($7.7 billion) in short-term cash by Monday, when it has a 4.2 billion-euro debt repayment due to the European Central Bank.

The funds, which will come from a long-dormant EU program called the European Financial Stabilization Mechanism, will also help Greece clear arrears with the International Monetary Fund, and with the Bank of Greece.

The loan, which will be for three months and disbursed over two instalments, comes a day after the ECB raised emergency liquidity assistance to Greek banks.

“What we’re witnessing is European solidarity in action,” said Valdis Dombrovskis, the EU Commission’s vice president for the euro.

“Politicians across 27 countries have invested their own political capital to speed through national decisions to shoulder Greece at this difficult time for the country,” he added.

Germany is likely to continue playing a key role in Greece’s future as it is the largest single bailout contributor. It’s taken a hard line, insisting on stringent spending cuts, tax hikes and wide-ranging economic reforms in return.

“The principle … of responsibility and solidarity that has guided us since the beginning of the European debt crisis marks the entire result from Monday,” Merkel told the special session of Parliament. The alternative to an agreement, she added, “would not be a time-out from the euro that would be orderly … but predictable chaos.”

Merkel will have to return to Parliament to seek approval for the final deal when the negotiations are concluded.

“I know that many have doubts and concerns about whether this road will be successful, about whether Greece will have the strength to take it in the long term, and no one can brush aside these concerns,” she said. “But I am firmly convinced of one thing: we would be grossly negligent, even irresponsible, if we did not at least try.”

Bailing out Greece hasn’t been popular in Merkel’s conservative bloc and 60 of its lawmakers failed to back her Friday, with another five abstaining.

In Athens, Greek Prime Minister Alexis Tsipras was expected to reshuffle his cabinet on Friday or by the start of next week, after he suffered a rebellion within his party over a parliamentary vote to approve measures demanded for the bailout talks to start.

A little more than a quarter of the 149 lawmakers from Tsipras’ radical-left Syriza party either voted against or abstained in the vote earlier this week. Tsipras still won an overwhelming majority as three opposition pro-European parties backed the proposals.

The legislation, which includes consumer tax increases and pension cuts, was demanded as a precondition to the launch of bailout negotiations. Elements of the bill are being implemented immediately, with changes to consumer tax coming into effect Monday, the finance ministry said.

The Greek government will be hoping that this week’s developments will soon start to relieve pressure on the Greek economy.

The first visible sign of economic healing in Greece will emerge when the banks open their doors again. On Thursday, the government said they would reopen Monday for limited transactions, for the first time in three weeks after capital controls were imposed June 29 ahead of a referendum Tsipras called on previous creditor proposals.

A central bank official said the Bank of Greece was working with the finance ministry and examining all possibilities so the banks could open as soon as possible. The official spoke on condition of anonymity because the discussions were not public.

Tsipras has acknowledged the package he signed up to went against his election promises to repeal austerity imposed over the last five years in return for Greece’s two international bailouts. But he has insisted he had no other choice, as the alternative would have seen Greece forced out of the euro — a development that would have decimated the Greek economy and roiled financial markets.